Garcia v.

Lim Chu Sing

Lim Cuan Sy delivered to Mercantile Bank of China a promissory note guaranteed by Lim Chu Sing as
surety and also secured by a chattel mortgage.

It also has a stipulation that in case of default, the whole amount will become due and demandable.

Lim Cuan Sy failed to comply with his obligation and so the bank required Lim Chu Sing as surety to deliver
the promissory note (P19, 605.17) with interest at 6% p.a.

Lim Chu Sing had been paying the monthly installments with interest on thereon,

leaving a balance of P9,105.17, after which he defaulted in the payment of the installments

which made the promissory note due and demandable.

The Mercantile Bank of China then foreclosed the chattel mortgage

and privately sold the property without the knowledge of Lim Chu Sing.

Lim Chu Sing is also the owner of shares of stock at the the amount of P10,000 representing the value of
his shares of stock to defendant’s indebtedness of P9,105.17.

Issue: Whether or not it is proper to compensate the indebtedness with the value of the shares of stock

Held: NO.

The shares of a banking corporation do not constitute an indebtedness of the corporation to the stockholder
and, therefore, the latter is not a creditor of the former for such shares.

The indebtedness of a shareholder to a banking corporation cannot be compensated with the amount of his
shares therein, there being no relation of creditor and debtor with respect to such shares.

The Lim Chu Sing not being a creditor of the Mercantile Bank of China, although the latter is a creditor of the
former, there is no sufficient ground to justify a compensation.